Forum: Senate must act to stop patent trolls

By Stan Sorkin

Published
2:06 pm EST, Thursday, February 13, 2014

As small business owners, operators of supermarkets, pharmacies and other food markets expect to encounter business challenges, from fluctuations in cost of grocery goods to higher tax rates. But in recent years, these purveyors — upon whom most Americans depend for their daily meals — have encountered an unexpected challenge: defending themselves against patent infringement suits.

As these unwarranted suits have grown in frequency throughout the food retail industry — and in others, from hotels to banks to tech startups — the financial cost associated with them has skyrocketed. Without Congressional action soon, retailers may be forced to reduce the number of employees, cut services, and even shut their doors. This leads to loss of jobs as well as an inability to meet consumer demand.

But why are food retailers being targeted with patent infringement suits in the first place? Because as they have adopted consumer-friendly technologies — like the use of convenient swipe cards, store locators on their websites, or QR codes for coupons or product information — they have in advertently fallen into the scope of patent trolls.

Patent trolls are predatory entities that acquire patents (often of questionable validity), but rather than using that intellectual property to manufacture and sell new goods, they hunt for companies that could be accused of infringing. Then, they demand costly settlements, or even file lawsuits, pocketing their profits.

From wifi in coffee shops to office scanners, even obvious technologies are being used as a tool for trolls to fatten their coffers. And, it is worth noting, this does not lead to innovation or to new technologies; rather, it is used to stifle the ability of businesses to become more innovative or consumer-friendly in their own services.

After all, many of the companies targeted by patent trolls in recent years can’t afford to take on the costs associated with defending themselves in court, regardless of the lack of merit behind these infringement charges; their defense could cost hundreds of thousands of dollars, if not millions. Thus, they often have to settle for a “licensing fee” — which, while usually less than the cost of litigation, can still tally into the tens or hundreds of thousands of dollars.

In the food retail industry, any such “fees” can be enough to push a food market or pharmacy from profitable to out-of-business. As is, a supermarket typically makes only a 1 percent to 1.5 percent bottom line profit. This simply does not allow an owner the luxury of taking on questionable licensing fees as a business expense.

These costs also divert resources that could be used in a positive way, from job creation to business expansion to the introduction of new services for consumers.

This patent trolling behavior is lucrative, with some estimates pegging the national cost of patent trolls at $29 billion per year. However, it is absolutely not market-friendly or pro-competitive.

Fortunately, at the end of last year, Congress took steps to intervene in this nationwide problem. The House of Representatives passed a strong, bipartisan bill that would level the playing field in litigation, making it less appealing for these patent trolls to attack productive businesses, and giving our grocery stores and pharmacies more information and tools to defend themselves.

A similar, although smaller bill is now being considered in the U.S. Senate and many are urging it be made more expansive. On behalf of the roughly 300 retail food stores and 200 pharmacies that the Connecticut Food Association represents — including the 30,000 associates that we employ — and the hundreds of thousands of Connecticut residents that shop at our stores each day, I urge Senators Blumenthal and Murphy to support an expanded, strong reform bill that will discourage bad players from continuing to pirate productive, service-oriented businesses like ours.

Connecticut’s businesses and our customers deserve better than to be held hostage by threats and shakedowns from shady characters, all for the sake of profit.